The Back-Room Medicaid Debate

States across the country are making a fateful decision that will determine the future tax burden on their citizens, the size of the largest line item in virtually every state’s budget, and the nature of the nation’s most significant expansion in entitlements since the Great Society. Medicaid is the nation’s worst entitlement program (which is saying a lot), and expanding it will cost each state’s taxpayers billions down the road—because the federal government is offering to pay for the expansion initially but will soon require the states to kick in as well.

Despite the importance of this decision, most of the public has been largely cut out of the question of whether states should expand Medicaid under President Barack Obama’s health care law. Instead the debate is dominated by those who would benefit from the expansion: vast medical providers eager for access to more taxpayer money and corporations that would like to shift employee health care costs to the taxpayers.

These groups are working the back rooms, telling legislators all about the short-term political benefits of expansion while ignoring the long-term costs. They promise a wonderful feast where the bill never comes due.

A few smart legislators are resisting the pressure and choosing not to expand the system. They understand the plan is effectively a delayed tax increase that will throw people into a government-run health care system with outcomes so awful that in many cases people are statistically better off being uninsured. Cramming more people into Medicaid will lead to even lower quality care and even worse access problems, hurting the very people it’s supposed to help.

Other lawmakers are considering the second-best option: delay. The expanded Medicaid program will interface with the Obamacare health insurance exchanges in determining eligibility and handling the “churn” of individuals moving between Medicaid and the exchange. The creation of the exchanges has been fraught with difficulty and bureaucratic delays. One of the federal administrators charged with the task recently said he was just hoping to avoid a “third world experience” when people begin using them.

Holding off on Medicaid expansion until after the exchanges go live at the beginning of next year will give states time to assess the problems and decide whether it is worth the trouble and expense.

Legislators in states that are gung ho for the Medicaid expansion, and where blocking it or delaying it is impossible, can only try to extract the maximum concessions they can from the federal government. Ideally, they would band together as policy expert James Capretta has suggested to demand a full block-granting of the Medicaid system to the states so the latter can run the program more effectively and engage in truly innovative reforms.

Failing that, they should set up the system with a mind toward future reform. Arkansas shows one path that may prove fruitful. It depends on essentially a handshake agreement between Health and Human Services Secretary Kathleen Sebelius and the state, but the framework—using the Medicaid expansion dollars to shift new enrollees into the insurance exchange—would be better than putting more people on Medicaid.

That approach was rejected by Democrats in 2009 as too costly, and providing this subsidy to millions of poor Americans could indeed be far more expensive than Medicaid. But the cost increases would be at the federal level, not the state level, and shifting poor Americans to a premium support model would improve health care quality and access for the poor and could help bring costs down.

The worst approach is to take the federal government’s money without insisting on concessions, because states that do so lose any leverage to negotiate with the feds for more flexibility. It also means they’ve effectively agreed to a future tax increase to pay the state’s portion, 10 percent or more, which will begin coming due in a few years.

The public deserves the truth about the costs of Medicaid expansion, not rosy false promises, and legislators owe it to them to have this debate in public. The decision is too important to be made in back rooms crammed full of lobbyists.